Cloth for wine: the Methuen Treaty, Lisbon, 27 December 1703

The two men who made the treaty did not sign the same sheet of paper. In Lisbon on 27 December 1703, John Methuen, a member of the English Parliament and Queen Anne's ambassador extraordinary to Portugal, put his name and the seal of his arms to one copy. Manuel Teles da Silva, Marquis of Alegrete and Count of Vilar Maior, signed another copy of the same terms for King Pedro II. To avoid a quarrel over which crown took precedence, each envoy signed his own instrument.1 source1 source

The text was short: a preamble and three articles, the last of which only set two months for the ratifications. The other two traded cloth for wine. Portugal would again let in English woollen cloth, which its own laws had shut out. In return England would tax Portuguese wine at a third less than French wine, for ever, whether it was at peace or at war with France.2 sources2 sources

In London the date was not 27 December at all. England still used the Julian calendar, by then 11 days behind the Gregorian calendar used in Portugal, so English records date the treaty 16 December 1703. The National Archives at Kew, which holds Portugal's ratification, gives both dates, and dates Portugal's ratification 2 May 1704, or 21 April in England.2 sources2 sources

Hardly anyone noticed. The diarist Narcissus Luttrell noted the treaty's arrival in London in January 1704 and added no comment. That winter the news from the peninsula was about the war, and about Archduke Charles of Austria's storm-tossed voyage to Lisbon to open a campaign in Spain. The treaty was ratified with, in the historian Paul Duguid's words, “as little fanfare as difficulty”.1 source1 source

The treaty grew out of a war. By 1701 Charles II of Spain was dead, without children, and two princes claimed his empire: Philip of Anjou, grandson of Louis XIV of France, and Archduke Charles, the younger son of the Emperor Leopold. England, the Dutch Republic and the Emperor backed Charles, fearing that France and Spain would become, in the words of their alliance treaty of 1701, “one and the same kingdom”.2 sources2 sources

Portugal had first sided with the Bourbons. The alliance treaty of May 1703 admits as much in its preamble, which mentions Pedro II's “late alliance” with Louis XIV and his grandson and explains the change of heart: Louis, it says, meant to annex the kingdoms of Spain to France “as so many provinces”. For the allies, Portugal offered safe harbours for their fleets and a back door into Spain.2 sources2 sources

Two treaties were signed in Lisbon on 16 May 1703, the 5th in England. John Methuen had negotiated them but had gone back to London in April, so his son Paul signed for Queen Anne. These military treaties drew far more attention at the time than the commercial one, and the three are easily confused, even by specialists.3 sources3 sources

English cloth needed a treaty because Portugal had shut it out. Between 1672 and 1698 a series of sumptuary laws, the pragmáticas, restricted imports of foreign manufactures. Behind them was Luís de Meneses, 3rd Count of Ericeira, the crown's finance chief from 1675, who backed woollens, silks, glass and ironworking and gave large workshops monopoly status as royal factories.2 sources2 sources

In 1677 the crown set up a manufactory in the wool town of Covilhã, with a fulling mill, a dye works and a press, run under contract by two New Christians of Covilhã (descendants of converted Jews) and a Lisbon-born captain. Eleven wool-combers, weavers and spinners were hired in Ireland to teach new methods. A decree of 9 August 1686 banned foreign cloth outright.2 sources2 sources

In England the bans hurt. In his pamphlet Britannia Languens (1680), William Petyt complained that England had once had the sole trade in woollens to Portugal, but that Portugal had prohibited the wearing of English cloth and set up its own manufacture. Ericeira died in 1690, and his policy was abandoned after 1700.3 sources3 sources

By then Portugal had found something better than cloth to pay with. Around 1694 prospectors struck alluvial gold in what is now Minas Gerais, in Brazil, and by 1697 the news was out. When Methuen signed in December 1703, it was already clear that gold would reach Lisbon in large quantities for decades.1 source1 source

The first article promised to admit English woollens “as was accustomed, till they were prohibited by the laws”. Adam Smith read it closely in 1776. Portugal, he wrote, became bound to admit English cloth on the same footing as before the prohibition, that is, not to raise the duties, but not on better terms than cloth from France or Holland. Britain was bound to charge Portuguese wine only two-thirds of the French duty.2 sources2 sources

The cloth side worked at once. Methuen's friends in the wool trade had shipped banned goods to Lisbon in advance, and their warehouses were full when the ban was lifted. On 27 May 1704, by the English calendar, Luttrell recorded letters from Oporto reporting the end of “the prohibition upon English cloth”.1 source1 source

The wine side mattered less at first. England and France were at war, French wine was already banned, and trade between the two countries was almost at a standstill from 1689 to 1714. English merchants looking for other wine had already found a steady supply in the Douro.2 sources2 sources

Port was older than the treaty. Fortified with brandy to survive the voyage, Douro wine became an export in the seventeenth century, and the first customs record to call it “vinho do Porto” dates from 1678. António Barreto, writing in Análise Social in 1988, found that the treaty seems to have made little particular difference to the Douro at first. It helped Portuguese wines in general, and wines from the south were shipped from Porto, Figueira and Viana alongside Douro wine.2 sources2 sources

Over the century, though, Britain's sales to Portugal boomed. Charles Whitworth's tables of British trade, printed in 1776, show exports to Portugal more than tripling from £336,357 in 1700 to over a million pounds a year in most years from 1730 to 1761. Imports from Portugal, mainly wine and fruit, moved between about £170,000 and £550,000 a year from 1700 to 1773.2 sources2 sources

Most of what Britain sent was cloth. Textiles made up 75 to 85 per cent of English exports to Portugal from 1715 to at least 1770, and by 1741–45 Portugal took 23 per cent of England's woollen exports. Portugal could not pay for all of it with wine, and the difference went to London in gold.1 source1 source

The treaty nearly died at ten years old. In 1713, making peace with France at Utrecht, the Tory ministers Robert Harley and Henry St John agreed a commercial treaty with France whose eighth and ninth articles promised French goods the treatment of the most favoured nation. Equal duties on French and Portuguese wine would have broken Methuen's promise, and MPs warned that Portugal would then ban English cloth again, as the treaty allowed.1 source1 source

Clothiers, weavers and merchants petitioned against the bill. On 18 June 1713 (by the English calendar) the House of Commons debated it from three in the afternoon until eleven at night and threw it out by 194 votes to 185. After that, Duguid writes, the obscure commercial treaty became “the Methuen treaty”, an untouchable centrepiece of English trade policy for a century and a half.1 source1 source

Success brought fraud. Wine from all over Portugal was sold as port as long as it left through the bar of the Douro, and some was doctored with elderberries for colour, Spanish wine or sugar. By about 1750 English buyers were complaining about quality. In 1754 they bought no wine from the growers, in the second of two years of poor harvests.2 sources2 sources

The government of Sebastião José de Carvalho e Melo, the future Marquis of Pombal, answered on 10 September 1756 with the Companhia Geral da Agricultura das Vinhas do Alto Douro. The company registered vineyards, judged each year's wine, fixed prices and controlled shipments downriver. Between 1758 and 1761 it marked out the region with boundary posts, the marcos pombalinos. The Douro is often called the world's first demarcated wine region.3 sources3 sources

The case against the treaty was made most forcefully by the German economist Friedrich List in 1841. He credited Ericeira's policy with real success and blamed the treaty for wrecking it, though he named the wrong Methuen, Paul instead of his father John, as its author.2 sources2 sources

Portuguese voices had made similar points long before. Luís da Cunha, Portugal's envoy in London, favoured laws against imported manufactures and wrote that wine exports profited a few leading men, while more factories were “the remedy of countless people” (translated from Portuguese).2 sources2 sources

The story of Covilhã shows how many forces were at work. The contract for its royal factory ended abruptly in 1703. Besides the treaty's effects, the museum historian Elisa Calado Pinheiro argues, it was the Inquisition that dealt the fatal blow: between 1700 and 1705 it jailed 18 Covilhã merchants, including the New Christian families who ran the factory. From 1710 João V gave the town's clothiers a monopoly on army uniforms.1 source1 source

Recent research points to the gold. Brazil produced about 40,000 kilograms of gold a decade in the first two decades of the century, 100,000 in the 1720s and over 140,000 in the 1730s, and more than 80 per cent of it reached Portugal. Kedrosky and Palma argue that this flood raised prices at home, made imports cheap and undercut Portuguese producers, the pattern economists call Dutch disease. By 1769 only four textile factories were working in the whole country.1 source1 source

In England the treaty was praised as a masterpiece of commercial policy because it brought in Brazilian gold. Adam Smith disagreed. He judged it “evidently advantageous to Portugal, and disadvantageous to Great Britain”, since Britain gave a real tax preference and got none in return, and he doubted the story that the Lisbon packet boat brought more than £50,000 in gold a week, which would be more than £2.6 million a year.1 source1 source

David Hume had made the same complaint in 1752 about England's barriers against France: “We lost the French market for our woollen manufactures, and transferred the commerce of wine to Spain and Portugal, where we buy much worse liquor at a higher price.”1 source1 source

David Ricardo took the same two goods in 1817 and drew a different lesson. In his example England needs the labour of 100 men a year to make a quantity of cloth and 120 to make a quantity of wine; Portugal needs 90 and 80. Portugal is better at both, yet both countries gain if Portugal makes wine and England cloth. Ricardo never named the treaty, but his cloth and wine are its cloth and wine, and the idea he drew from them is known today as comparative advantage.2 sources2 sources

Historians disagree on when the treaty lapsed: A. D. Francis thought the Anglo-Portuguese treaty of 1810 replaced it, others say 1813 or 1840. Its advantage ended for good in 1860, when the Cobden–Chevalier treaty with France and Gladstone's budget taxed fortified wines such as port more heavily than claret, burgundy or champagne.2 sources2 sources

Its traces are easy to find. The port trade stayed largely in British hands: in 1777, 42 British firms out of 73 exporters shipped 77 per cent of all port. The demarcated Douro region of 1756 set a principle that, Barreto noted in 1988, almost every wine policy had adopted, the European Community's included. And whenever Portugal's long economic lag is discussed, the cloth-for-wine bargain of 1703 still comes up.3 sources3 sources